Tax Law (Questions About Taxes)/2013 Education expenses
QUESTION: I have a child who started college in sep 2013 and turned 18 at the end of the year 2013. His tuition is just about fully paid with grants & scholarships but I covered his books, travel expenses, deposit registration fee to secure his spot, and a small amount not covered by financial aid. He earned about 1500 for the year and will be filling out income taxes however I don't believe he can claim those expenses since I paid them. Please advise whether or not I can claim those expenses and how to use the 1098-T sent by the school. I've always claimed him as a dependent on our taxes but now that he's working(part-time) and has earned some income I wanted to know if it is possible for me to claim those education expenses for 2013 while he also fills out his own income tax for the income he earned.
ANSWER: You can claim him as a dependent and up to 5250 toward tuition and books if he does not claim himself as a deduction on his personal tax return.
From the numbers it is not advantageous for him to claim himself as a dependent.
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QUESTION: Hello again and thank you for the advice. I have one more question regarding the 1098-T. I wanted to add that he got a $30000 scholarship reported on that form and I was told that would be part of his income for the year to be reported as well as the $1500 he earned thru his jobs. Unfortunately, I don't fully grasp this concept as he is our first and this situation is totally foreign to me. Truthfully, I'm trying to understand this as much as I can rather than just add this info in the tax software. That being said I wanted to know if with these facts you still feel that it's best that he doesn't claim himself on his own tax.
Thanks in advance.
ANSWER: Well the IRS doesn't want anything to happen that can't be taxed. So although the money was "Given" to him the IRS still wants him to pay taxes on it as if he "Earned" it.
His personal 1040 will have to show that income, he can deduct $5250 of it as scholarship and the rest is taxable. Welcome to the Land of the Free, and the Home of the Brave.
That uses up the $5250 I mentioned above.
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QUESTION: Can you please clarify whether the 5250 in your first answer refers to expenses that I can claim and the 5250 in the second response, where you said "he can deduct $5250 of it as scholarship", refers to a deduction from his scholarship amount. in other words... He will report the 1098-T info as income and will not claim himself as a dependent so that 5250 will be his deduction so he will be taxed only on the balance while I can still keep him as a dependent and claim the expenses that I incurred for his education(books,travel etc).
I was less than complete with my answer and a reader pointed that out. I said the scholarship would be attributed to your child as income and it would be taxed. However there are offsets that are available and your accounting software or accountant should apply them.
Tax-Free Scholarships and Fellowships
A scholarship or fellowship is tax free (excludable from gross income) only if you are a candidate for a degree at an eligible educational institution.
A scholarship or fellowship is tax free only to the extent:
• It does not exceed your expenses;
• It is not designated or earmarked for other purposes (such as room and board), and does not require (by its terms) that it cannot be used for qualified education expenses; and
• It does not represent payment for teaching, research, or other services required as a condition for receiving the scholarship
These are found in IRS Publication 970